How many bank checking /saving accounts are needed as a first time landlord

Question

The House is not under an llc. Just want to start setting up as if it were.

so far i have thought about creating 7 accounts.

1) all rental income account

2) account where common utilities and mortgage will be billed

3)maintence/capex expenses

4)vacancy expense

5)management expense (to put the units up for rent)

6) property taxes

7)cashflow

am i missing anything?

Charles Carillo · Answer

@Reyna Ayala

I personally feel this is overkill. When I began real estate investing, I would have one operating checking account per property. Rent goes into this account, and expenses are paid out. I also had one savings account that I used for my reserve fund for all of my properties. I would add to this account every month, allowing me to pull from it whenever there was a large repair or capex event.

Most of what you listed above are expenses. Typically, if you have a mortgage, the mortgage company will collect taxes and insurance when you pay,  so there is not really any budgeting required for this. Pay your utilities out of this account, and after the month has ended, you can distribute your cash flow from this account to your reserve account and your personal checking account. Or you can just put it all into the reserve account, growing that to buy your next property and/or for future capex or vacancy/unit make-ready expenses.

Greg Scott · Answer

That is a crazy large number of accounts!  You don't need all that. (FWIW, whether or not you have an LLC really has no bearing on the number of accounts you should need.)

What you seem to be missing is your main need is an accounting system.  Realistically, one checking account and an accounting system will meet all your needs and keep your business better organized than 7+ bank accounts.

If you want to collect bank interest from excess cash, add a savings account.

Alecia Loveless · Answer

@Reyna Ayala No need for that many accounts. Most will say 1 savings for  deposits and 1 checking for operations.

Personally I like 1 savings and 1 individual checking for each property. I feel like this gives me an instant screenshot of every expense for each building so I know Building A paid $1800 for insurance, Building B paid $2100 for insurance and Building C paid $2400 for insurance as opposed to having one account and seeing Insurance was $6300.

It just gives me a better screenshot in my opinion.

Chris Seveney · Answer

You need 2. A savings to put deposits and another account for everything else

you don't need separate bank accounts as accounting software will classify all of those items. Even if you had 5 or 50 rentals you could still have one bank account. wehave 60+ assets and have one bank account.

Nathan Gesner · Answer

That sounds very similar to how I operate.

Adam Bartomeo · Answer

TWO ACCOUNTS ONLY! Escrow and Operating.

Max Emory · Answer

Hey @Reyna Ayala, simplicity is key to setting yourself up for growth without all the headaches. Your account structure depends on your goals for growth and if you plan to self-manage or hire a PM. If you hire a PM, your financial account structure can be simpler.

If you plan to continue purchasing rentals, I like some key accounts at the "management" level (income, opex, tax, owncp, reserve) and only have 1 checking account per property to prevent having 100 accounts and unnecessary complexity. I also like having credit cards at the management level rather than a credit card per property.

We can get into the weeds with this stuff but it all depends on your specific goals and how you're managing your properties. Then, once you incorporate an entity structure, that will play a part as well.

Hope that helps!

Mark F. · Answer

Echo what others said, 7 is overkill. At the moment with 3 rentals (6 total units), I have one account and a credit card associated with it. My main account has all the rents deposited and all expenses deducted such as mortgages, some utilities and an electronic payment app connected to the account to pay contractors. Then I have a credit card to charge supplies and any utilities which allow credit card payments. This card is tied to the first bank account and is on auto pay. Since my rentals cash flow, there is an excess to cover cap ex, vacancies etc. This account is also a savings account so I’m earning interest on it. Yes, companies allow mortgage deductions from a savings account without issue. Like Scott said, I use a large bank with no fees and also have my (separate) personal account with them so I can keep an eye on both when I log in. If I ever run low on reserves, I can easily transfer funds from my personal to rental account. I also do not take any money from my rentals as I’m in the growth phase with a W2 and low personal expenses.

I’m curious if others opinions on how I do this. @Nathan Gesner would love your opinion. I do my own bookkeeping for now and rentals are in my personal name.

Ok I lied, I also have accounts for tenants security deposits but that’s just a set it and forget it until they move out. No need to check those since they’re all no fee no minimum accounts.

Nathan Gesner · Answer

I recommend two accounts: checking and savings. If you have an LLC, the accounts should be business accounts in the name of the LLC. If you have more than one LLC, each LLC should have its own set of accounts.

Checking: Collect all income here, then use it to pay bills, the mortgage, or maintenance. If you are setting aside funds for capex, taxes, insurance, or other expenses that don't occur monthly, transfer those funds to Savings each month and hold them there until it's time to spend them. You will receive the security deposit in Checking but then transfer it to Savings.

Savings: Hold the deposit here so it's separate from operating funds. You can also hold money for maintenance, capex, taxes, insurance, or other projected expenses. When a tenant moves out, transfer the deposit back to Checking so it's ready to apply towards expenses or refund the Tenant.

If you end up with excess funds in the Checking account, I recommend you transfer it to a third account designated explicitly for future investments. That ensures you don't spend it on other things and know exactly how much you have to spend on the next purchase. If mixed in with your deposits and reserve funds, you may accidentally spend money you shouldn't have.

Scott Mac · Answer

Yearly bank fees for each, aka choose your bank wisely.

How many bank checking /saving accounts are needed as a first time landlord

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